In 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) extended and modified the rules relating to the bonus depreciation deduction available for qualified property placed in service after September 27, 2017, and before January 1, 2028.
At the time the law was enacted, the Bonus Depreciation Deduction had been scheduled to expire for property placed in service after December 31, 2019 (December 31, 2020, for certain longer lived and transportation property). Under the Tax Cuts and Jobs Act of 2017 (TCJA), the bonus depreciation deduction was extended and modified through 2026 (through 2027 for longer production period property and certain aircraft).
Under Tax Cuts and Jobs Act of 2017 (TCJA), the 50-percent bonus depreciation that applied before Tax Cuts and Jobs Act of 2017 (TCJA) is Increased to 100 Percent for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after September 27, 2017, and before January 1, 2023. Thus, the Tax Cuts and Jobs Act of 2017 (TCJA) repealed the phase-down of the 50-percent allowance that had been scheduled for property placed in service after December 31, 2017, and for specified plants planted or grafted after that date (Code Section 168(k)(6)(A), Code Section 168(k)(6)(B)); Publication L. 115-97, Section 13201).
A taxpayer can Elect to Deduct 50 Percent, instead of 100 percent, of bonus depreciation for qualified property acquired after September 27, 2017, and placed in service or planted or grafted, as applicable, by the taxpayer during the tax year that includes September 28, 2017. Because there is no requirement that the election be made with respect to any class of property, as is required for the election out of the bonus depreciation deduction, the election applies to all qualified property (Code Section 168(k)(10); Regulation Section 1.168(k)-2(f)(3)).
The 100 Percent Bonus Depreciation allowable under In 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) is phased down by 20 percent per calendar year for property placed in service, and specified plants planted or grafted, in tax years beginning after 2022 (after 2023 for longer production period property and certain aircraft). Thus,
(1) for property placed in service in 2023, the Bonus Depreciation Deduction is 80 Percent (100 percent for longer production period property and certain aircraft);
(2) for property placed in service in 2024, the Bonus Depreciation Deduction is 60 Percent (80 percent for longer production period property and certain aircraft);
(3) for property placed in service in 2025, the Bonus Depreciation Deduction is 40 Percent (60 percent for longer production period property and certain aircraft);
(4) for property placed in service in 2026, the Bonus Pepreciation Deduction is 20 Percent (40 percent for longer production period property and certain aircraft); and
(5) for longer production period property and certain aircraft placed in service in 2027, the Bonus Depreciation Deduction is 20 Percent (Code Section 168(k)(6)(A), Code Section 168(k)(6)(B), Code Section 168(k)(6)(C)).
There are special rules for property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017. In this case, Bonus Depreciation is:
(1) 50 Percent in the case of:
(i) Property Placed in Service before January 1, 2018, and
(ii) Longer Production Period Property and certain aircraft placed in service in 2018;
(2) 40 Percent in the case of:
(i) Property Placed in Service in 2018 (other than longer production period property and certain aircraft), and
(ii) Longer Production Period Property and certain aircraft placed in service in 2019;
(3) 30 Percent in the case of:
(i) Property Placed in Service in 2019 (other than longer production period property and certain aircraft), and
(ii) Longer Production Period Property and certain aircraft placed in service in 2020; and
(4) 0 Percent in the case of:
(i) Property Placed in Service after 2019 (other than longer production period property and certain aircraft), and
(ii) Longer Production Period Property and certain aircraft placed in service after 2020 (Code Section 168(k)(8)).
The Tax Cuts and Jobs Act of 2017 (TCJA) also expanded the definition of Qualified Property eligible for the additional first-year depreciation allowance to include qualified film, television and live theatrical productions placed in service after September 27, 2017, and before January 1, 2027 (Code Sections 168(k)(2)(A), 168(k)(2)(H)).
The IRS initially released proposed regulations on the post Tax Cuts and Jobs Act of 2017 (TCJA) bonus depreciation deduction in August of 2018, in Regulation 104397-18. The IRS gave taxpayers permission to rely on these proposed rules until final regulations were issued. On September 24, 2019, the IRS issued final regulations in Treasury Decision 9874, as well as additional proposed regulations in Regulation 106808-19 which withdrew a portion of the proposed regulations previously issued, and clarified some of the Bonus Depreciation Rules, particularly with respect to the expansion of the bonus depreciation rules for used property. These proposed rules were finalized in September of 2020 in Treasury Decisions 9916.
In Revenue Procedures 2020-50, the IRS issued guidance for taxpayers who want to apply the final rules in Regulation Section 1.168(k)-2 and Regulation Section 1.1502-68 (2020 final regulations), or to rely on the Proposed Regulations under Code Section 168(k) (Regulation 106808-19) issued in September of 2019 (2019 proposed regulations), for:
(1) certain depreciable property acquired and Placed in Service after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer’s first tax year that begins on or after January 1, 2021;
(2) certain plants planted or grafted, as applicable, after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer’s first tax year that Begins on or after January 1, 2021; and
(3) Components acquired or Self-constructed after September 27, 2017, of certain larger self-constructed property and placed in service by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer’s first tax year that begins on or after January 1, 2021.
If the taxpayer retroactively applies Regulation Section 1.168(k)-2 and Regulation Section 1.1502-68, or relies on the 2019 proposed regulations, this revenue procedure also allows the taxpayer to make a late election under Code Section 168(k)(5), Code Section 168(k)(7), or Code Section 168(k)(10), Regulation Section 1.168(k)-2(c) of the 2020 final regulations (as defined in Section 2.02(4) of Revenue Procedures 2020-50) or the 2019 proposed regulations, or Regulation Section 1.1502-68(c)(4) of the 2020 final regulations, or to Revoke an Election under Code Sections 168(k)(5), 168(k)(7), 168(k)(10), or 2019 Proposed Regulation Section 1.168(k)-2(c), for the taxpayer’s tax years ending on or after September 28, 2017, and before the taxpayer’s first tax year that begins on or after January 1, 2021.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
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(Updated 06152021-1 94-201.25)